WHAT IS YOUR PLANET WORTH? A Handbook for Understanding Natural Capital

WHAT IS YOUR PLANET WORTH?
A Handbook for Understanding Natural Capital
By Allyson Schrier, Justine Bronfin, and Jennifer Harrison-Cox
September 2013
Earth Economics
exists because generous foundations, governments,
environmental organizations and people like you are
interested in finding ways to conserve the unique
biodiversity of watersheds everywhere.
suggested citation
Schrier, A. V., Bronfin, J., Harrison-Cox, J. 2013. What is
your planet worth? A handbook for understanding natural
capital. Earth Economics. Tacoma, WA.
acknowledgements
Earth Economics wishes to acknowledge the extremely
helpful contributions received during the preparation of
this handbook. First and foremost, we wish to acknowledge
the Mountaineers Foundation, the Bullitt Foundation and
independent donors to the Earth Economics’ General Fund
who made this handbook possible. Thanks to reviewers
Corinne Cooley, Jennifer Harrison Cox, Jonathan Kochmer,
Maya Kocian, Rowan Schmidt, and Aaron Schwartz for their
technical editing, research and support in strengthening
the handbook. Thank you also to our wonderfully talented
editor and designer, Leah Eaton Mitchell, and thanks to
Angela Fletcher for the final touches to the design. Thanks
to our Board of Directors, Josh Reyneveld, Ingrid Rasch,
David Cosman, David Batker and Josh Farley.
©2013 by Earth Economics. Reproduction of this
publication for resale or other commercial purposes
is prohibited without prior written permission of the
copyright holder. Reproduction of this publication
for educational or other non-commercial purposes
is authorized without prior written permission from
the copyright holder provided the source is fully
acknowledged.
Download this handbook for free at www.eartheconomics.
org. Large quantities of printed handbooks for educational
purposes can be purchased through Earth Economics by
emailing info@eartheconomics.org. We welcome stories of
how you used this publication and any feedback you have
can be sent to info@eartheconomics.org. Thank you for
your interest in natural capital!
ii
introduction
In one form or another, humans have always lived off the
land. Our ancestors had a very direct connection with
the Earth’s resources, foraging for food and materials to
create clothing, shelter, and tools. Today, though many
people have never had the experience of plucking a berry
off a huckleberry bush in the mountains, we are still
dependent upon the planet’s natural resources to survive.
We drink water and breathe air filtered by forests. We
take medicines derived from plants and trees. We find
badly needed respite from the workaday world in natural
settings like parks and woodland trails.
It is an unfortunate fact that the natural resources we
depend upon are being depleted at an alarming rate, and
that unless people recognize the enormous value of the
Earth’s natural systems, they will disappear. Sadly, the
value of our planet’s natural resources has historically
been ignored or seriously underestimated when crucial
decisions have been made about where and how to best
invest in a healthy future.
Things are changing! Exciting methods are being developed to
assign dollar values to fresh air, clean water, and flood control—
just some of the many benefits provided by healthy ecosystems.
Work is being done to give natural systems like waterways,
forests, and soil the same importance and critical economic
value as human-built systems like roads, dams, and water
filtration plants. When policy and decision makers understand
the value of the services provided by a healthy ecosystem, they
can justify spending the money and resources needed to keep
the ecosystem functioning for future generations.
This handbook explores and explains the relationship
between human economies and natural systems, and
provides an understanding of the historic disconnect
between the environment and the economy. It introduces
new tools and principles that recognize the economic
importance of our planet’s natural systems and provides
mechanisms to foster the changes needed to preserve our
planet’s precious natural resources.
3
Ecosystems give us natural resources like
clean water and air that we cannot live without.
What are Ecosystem Services
What are Ecosystem Services
What are Ecosystem Services
Ecosystem services are benefits that people receive from natu
Ecosystem services are benefits that people receive from natu
Healthy ecosystems provide many benefits such as habitat
Ecosystem services are benefits that people receive from natu
BENEFITS
for fish and wildlife, recreation opportunities that improve
OF A HEALTHY
ECOSYSTEM
public health, flood protection, biodiversity, aesthetic and
Four categories of ecosystem services: cultural value and more. These naturally occurring benefits
Four categories of ecosystem services: derived from an ecosystem are called Ecosystem Services.
Four categories of ecosystem services: There are four categories of Ecosystem Services:
Provisioning services produce food, water, oxygen, buildin
Provisioning services produce food, water, oxygen, buildin
Provisioning
services. These are goods provided by
fuel, clothing, medicine, etc. Everything in our economy i
Provisioning services produce food, water, oxygen, buildin
natural
systems such as lumber and paper from trees,
fuel, clothing, medicine, etc. Everything in our economy i
Provisioning services produce food, water, oxygen, buildin
made from natural capital such as minerals, liquids, gases berries,
mushrooms and other edibles foraged from forests,
fuel, clothing, medicine, etc. Everything in our economy i
fuel, clothing, medicine, etc. Everything in our economy i
made from natural capital such as minerals, liquids, gases andliving things.
medicine derived from plants and trees. Rivers supply
made from natural capital such as minerals, liquids, gases made from natural capital such as minerals, liquids, gases living things.
fresh
water for drinking and fish for food. Trees give us
oxygen.
Ultimately, everything in our economy, from resins
living things.
living things.
to raincoats, is made from natural capital.
Regula0ng services create and maintain healthy Regula0ng services create and maintain healthy environmental condi?ons. Examples are gas, and climate
Regula0ng services create and maintain healthy environmental condi?ons. Examples are gas, and climate
Regula0ng services create and maintain healthy Regulating
services. A healthy ecosystem creates and
stability, flood and storm protec?on, water quality, soil environmental condi?ons. Examples are gas, and climate
environmental condi?ons. Examples are gas, and climate
stability, flood and storm protec?on, water quality, soil maintains healthy environmental conditions. For example,
erosion control, and disease and pest control. These healthy
ecosystems help regulate climate, buffer storm
stability, flood and storm protec?on, water quality, soil stability, flood and storm protec?on, water quality, soil erosion control, and disease and pest control. These surges,
reduce
soil erosion, and offer disease and pest
contribute to ecosystem func?ons and economic resilienc
erosion control, and disease and pest control. These erosion control, and disease and pest control. These contribute to ecosystem func?ons and economic resilienc
control.
contribute to ecosystem func?ons and economic resilienc
contribute to ecosystem func?ons and economic resilienc
Information services. From watersheds to parks to desert
Suppor0ng services maintain condi?ons for life including
landscapes,
ecosystems provide humans with meaningful
Suppor0ng services maintain condi?ons for life including
habitat, nutrient cycling, soil forma?on, and pollina?on. interactions
with nature. These services include spiritually
Suppor0ng services maintain condi?ons for life including
habitat, nutrient cycling, soil forma?on, and pollina?on. Suppor0ng services maintain condi?ons for life including
significant
species
and natural areas, places for recreation/
These natural processes are vital. Provided to us free of habitat, nutrient cycling, soil forma?on, and pollina?on. habitat, nutrient cycling, soil forma?on, and pollina?on. These natural processes are vital. Provided to us free of tourism, and opportunities for scientific research and
charge, they are oCen leC out of economic analysis. These natural processes are vital. Provided to us free of education
about nature.
These natural processes are vital. Provided to us free of charge, they are oCen leC out of economic analysis. charge, they are oCen leC out of economic analysis. charge, they are oCen leC out of economic analysis. Habitat services. Intact ecosystems provide refuge and
nurseries to wild plants and animals. These habitat
Cultural services provide meaningful human interac?ons services
contribute to the healthy growth of populations
Cultural services provide meaningful human interac?ons andwith ecosystems. Cultural services include spiritual, the conservation of biological and genetic diversity.
Cultural services provide meaningful human interac?ons with ecosystems. Cultural services include spiritual, Cultural services provide meaningful human interac?ons recrea?onal, scien?fic, aesthe?c and educa?onal value.
At least
twenty-three specific ecosystem services provide
with ecosystems. Cultural services include spiritual, with ecosystems. Cultural services include spiritual, recrea?onal, scien?fic, aesthe?c and educa?onal value.
value to humans, which are shown on the following page.
recrea?onal, scien?fic, aesthe?c and educa?onal value.
recrea?onal, scien?fic, aesthe?c and educa?onal value.
Portions of this project were produced with support from the Washington Department of Ecology gra
Portions of this project were produced
with
support
fromWatershed
the Washington
Department
gra
Nisqually
River
Council
Initiative
Program. of Ecology
4
Nisqually
River
Council
Watershed
Initiative
Program.
Portions
Portions of
of this
this project
project were
were produced
produced with
with support
support from
from the
the Washington
Washington Department
Department of
of Ecology
Ecology gra
gra
Portions of this project
were
produced
with
support
from
the
Puget
Sound
Partnership
Nisqually
River
Council
Watershed
Initiative
Program.
Nisqually
River
Council
Watershed
Initiative
Program.
Portions of this project were produced with support from the Puget Sound Partnership
©2011 by Earth Economics
Portions
support
from
©2011 bywith
Earth
Economics
Portions of
of this
this project
project were
were produced
produced
with
support
from the
the Puget
Puget Sound
Sound Partnership
Partnership
Provisioning
Provisioning of drinking
water, irrigation and
industrial use.
Water Supply
Producing crops, fish,
game and fruits.
Food
Providing fuel, fiber,
fertilizer, minerals and
energy.
Regulating
CO₂
Gas
Regulation
Climate
Stability
Energy and
RawMaterials
Genetic
Resources
Medicinal
Resources
Ornamental
Resources
Providing sources of
biological materials that
support crop resistance,
health and scientific
research.
Providing drugs,
pharmaceuticals,
tests, tools and assay
organisms.
Delivering resources
for fashion, handicraft,
jewelry, worship and
decoration.
Disturbance
Prevention
Habitat and
Biodiversity
5
Preventing and
mitigating natural
hazards such as floods,
hurricanes, fires, and
droughts.
Creating soils for
agricultural production
and ecosystems integrity.
Soil
Formation
Providing pollination of
wild and domestic plant
species.
Pollination
Nutrient
Regulation
Water
Regulation
Provisioning natural
irrigation, drainage,
ground water recharge,
river flows and
navigation.
Providing pest and
disease control.
Biological
Control
Aesthetic
Waste
Treatment
Providing sensory
enjoyment from viewing
scenic landscapes and
experiencing Nature’s
beauty.
Experiencing natural
ecosystems and outdoor
activities.
Recreation
Using natural systems for
education and scientific
research.
Science and
education
Spiritual and
historic
Improving soil, water
and air quality, pollution
control/detoxification;
break down of waste
materials.
Promoting healthy and
productive soils, and
gas, climate and water
regulating services.
Information
Soil
Retention
Promoting growth of
commercially harvested
species.
Nursery
Maintaining a favorable
climate promotes human
health, crop productivity,
and other climatic
processes at global or
local levels.
Retaining arable land,
slope stability and
coastal integrity.
Habitat
Maintaining genetic and
biological diversity, the
basis for most other
ecosystem functions.
Providing clean,
breathable air, disease
prevention, and planet
habitability.
Cultural and
Artistic
Experiencing nature
for religious, historic,
heritage or other
purposes.
Using nature as a motive
for art, film, painting,
folklore, books, natural
symbols, architecture
and advertising.
WHAT DO WE
PAY FOR THESE
SERVICES?
We pay nothing for ecosystem services, but when nature
disappears, the services disappear, too. When ecosystems
are destroyed and the services they provide eliminated,
those services must be replaced by manmade systems
(built capital). Replacing natural capital with built capital is
an expensive solution that very rarely works as well— or as
inexpensively— as the natural system that is being replaced.
These services
are provided free
of charge.
Consider the Catskills watershed (natural capital), which
provides high quality drinking water storage and filtration
for New York City. NYC’s decision to invest 1.5 billion in its
Catskills watershed has saved $ 6 billion compared to the cost
of a filtration plant plus operating costs.
Compare New York City’s water source with an example
from neighboring New Jersey. In addition to the costs of
construction and routine upkeep, the water treatment facility
(built capital) in Haworth, New Jersey was damaged during
Hurricane Sandy. New Jersey is spending an estimated $2.6
billion dollars making repairs post-storm.
RESILIENCY is the ability of a system to
withstand and recover from disturbances
such as pollution or natural disasters.
Ecosystems (forests or wetlands) are selfmaintaining and remarkably resilient
compared with built capital (cars or levees.)
Regulating services, such as water quality
and climate regulation, create ecosystem
resiliency by allowing it to continue in a
sustainable manner.
6
Natural capital does for free what built capital does
at great cost. Built capital breaks down, affecting
surrounding ecosystems, animals, and people. The
benefits provided by built capital are typically short
term because it depreciates over time, eventually
needing to be replaced.
Over time, natural capital appreciates in value. This
appreciation is due in part to the fact that natural
capital is constantly being regenerated by living
organisms converting energy from the sun into
growing biomass—the foundation for life on Earth.
Appreciation is also due to increased scarcity and
approaching thresholds. For example, timber harvest is
now limited by land availability and tree growth rather
than availability of logging equipment. Natural capital
provides benefits over a long period of time (centuries
or longer), and requires very little maintenance.
The “Asset Value” of the Nisqually Watershed
The “Asset Value” of the Nisqually Watershed
Watersheds provide economic benefits across 3me. Watersheds provide economic benefits across 3me. Measuring the value of watersheds across decades is important; it determines how we Measuring the value of watersheds across decades is important; it determines how we invest in watershed assets. invest in watershed assets. Built capital
Built capital
VS. VS.
2009 2025
2025 2050
2050 2100
2100
2009
YearYear
Natural capital provides benefits over vast Natural capital provides benefits over vast Natural
capital provides benefits over base
amounts of <me, appreciates in value amounts of <me, appreciates in value amounts of time, appreciates in value and,
and, if healthy, grows and is self‐
ifand, if healthy, grows and is self‐
healthy, grows and is self-maintaining. Our
maintaining. Our great grandchildren may maintaining. Our great grandchildren may great
grandchildren may drink clean water
drink clean water provided by the same drink clean water provided by the same provided
by the same natural systems that
natural systems that the Nisqually natural systems that the Nisqually support an existing watershed today.
Watershed provides today. Watershed provides today. Value
Value
Value
Value
Natural capital
Natural capital
2009 2025
2025 2050
2050 2100
2100
2009
YearYear
Built capital provides benefits in the near Built capital provides benefits in the near term, depreciates, is not self‐maintaining term, depreciates, is not self‐maintaining and falls apart. A car will provide us with and falls apart. A car will provide us with temporary benefits; our great grandchildren temporary benefits; our great grandchildren will most likely not be driving the same car. will most likely not be driving the same car. 7
The fundamental difference in how natural and built capital provide economic benefits across The fundamental difference in how natural and built capital provide economic benefits across 3me is one reason we have not fully valued and not sufficiently invested in natural capital.
3me is one reason we have not fully valued and not sufficiently invested in natural capital.
SO WHAT’S
THE PROBLEM?
As ecosystems
are lost, so are
the services
those ecosystems
previously provided.
Once, raw materials were plentiful and built capital was
scarce. As a result, we live in a society that has long placed
great value on built capital like roads, dams and machinery,
and less value on the raw materials (natural capital)
required to construct these things. Over the past 50 years,
however, humans have altered ecosystems more rapidly and
extensively than in any comparable period in human history.
Today we have plenty of built capital, while natural capital like
healthy wetlands, forests and working lands has become the
limiting factor to further economic development.
Today’s scientific studies consistently conclude that humans
are depleting Earth’s flow of natural services faster than the
flow can be regenerated, because the natural capital that
produces these services is being destroyed. For example, it
has been estimated that humans now directly or indirectly
consume up to 40% of the Earth’s Annual Net Primary
Productivity. Net Primary Productivity (NPP) is the total
biomass (forests, mangroves etc.) produced by ecosystems
through photosynthesis each year. As humans consume more
biomass, less is available for the millions of other species on
the planet, which can cause food webs to collapse and place
greater stress on the environment.
A THRESHOLD is a point at which a system
may experience a dramatic change, or
collapse. Thresholds may include heavy
rainfall triggering landslides and floods,
loss of habitat causing species extinction or
dramatic climate change.
8
What happens when
ecosystems disappear?
When ecosystems are destroyed we lose the services they
once provided and the effects can be devastating.
Floods. Covering the earth’s soil with impervious surfaces
(such as pavement and buildings) increases the risk of
flooding. One of the most significant factors in an ecosystem’s
ability to prevent flooding is the absorption capacity of
the land. The U.S. Geological Survey estimates that urban
development leads to 100-600% more flooding for two-year
storm events. Increased flooding means more property
damage, lost work time, injuries, and loss of life.
Reduced air quality. Cutting down trees lowers air quality. In
Washington’s Puget Sound area alone, urban forests remove
approximately 78 million pounds of pollutants per year.
Having these gasses sequestered by forests saved $166.5
million per year in avoided health care costs and other costs
for the region in 1996. When we strip away this resource,
we lose the valuable gas regulating service; the lower air
quality causes health care costs to spike as the incidence of
respiratory diseases rise.
Erosion. Land clearing (removing stabilizing native
vegetation) increases the likelihood of landslides and water
run-off due to changes in drainage patterns. When we
construct bulkheads and seawalls, the earth’s natural ability
to build and maintain shorelines is disrupted. This leads to the
destruction of marine wildlife habitat and intensifies erosion
on nearby beaches and shorelines. Loss of or sudden change
in shoreline can result in private property damage, public
infrastructure damage, loss of wildlife habitat, and loss of life.
Floods, landslides, and poor air quality are but a few of the
consequences we suffer when ecosystems are destroyed.
Ecosystems give us natural resources like clean water and
air that we cannot live without. These are provided free of
charge.
As ecosystems are lost, so are the services those
9
ecosystems previously provided.
Built Capital
Natural Capital
Definition
Infrastructure Term(s)
Goods manufactured by humans.
Built Infrastructure
Goods or services provided by nature.
Green Infrastructure
Blue-Green Infrastructure
Natural Infrastructure
Examples
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Investment Pros
• Creates short-term jobs
• Enables technology transfers
within and between countries
• Downstream industry creation (repair
and replacement, secondary markets)
• Little or no initial investment cost
• Low maintenance and highly sustainable
for generations into the future
• Supports long-term, place-based
jobs that cannot be outsourced
• Left intact will support surrounding
ecosystems, animals, and people
• Provides long-term benefits
• Appreciates in economic value over time
Investment Cons
• High initial investment costs
• High maintenance costs
• Frequently contributes to
water and air pollution
• Potentially high costs of remediation
• Future regulatory uncertainty
• Typically provides only
short term benefits
• Depreciates in economic value over time
• Requires political will
and public awareness
• Complex dependencies on
surrounding ecosystems
• Difficult to finance with current
accounting and bond rules
Roads and bridges
Water pumping and filtration plants
Electrical grid
Computers and electronics
Buildings and parking lots
Dams and levees
Cars and boats
Wetlands
Shorelines, beaches, and dunes
Glaciers
Aquifers
Forests and prairies
Rivers and lakes
Oceans and seas
10
ecosystem
From kelp forests and marine ecosystems to
tropical rainforests; from savannas and deserts
to tundra; countless cases across the world
illustrate the vital role ecosystems play in our lives.
Following are three stories that demonstrate the
importance of ecosystems to our economy and the
dramatic impact caused by their loss.
11
ms in action
WATERSHEDS
The federal Environmental Protection Agency (EPA)
defines a watershed as “the area of land where all of
the water that is under it or drains off of it goes into
the same place.” In the continental US there are 2,110
watersheds. Among other services, healthy watersheds
naturally provide, store, and filter water, saving
communities billions of dollars compared to relying
solely on costly filtration plants and retention ponds.
New York City has dedicated approximately $300
million annually to conservation projects in the
Catskill/Delaware River watershed . The city realized
that securing intact watersheds, and thereby the
watershed’s water storage and filtration services, is
a more effective investment than spending $6-10
billion on a water treatment facility with on-going
maintenance costs.
This investment also proved to be a resilient solution
for disaster mitigation and recovery. During Hurricane
Sandy, New York City’s watershed provided an
uninterrupted supply of clean, gravity-fed water. Very
few residents of New York City lost potable water
during and after the storm.
In contrast, New Jersey relies on local groundwater,
man-made pumps, filtration plants, and intakes,
which were inundated and contaminated with sewage
and salt water. In the aftermath of Hurricane Sandy,
some counties in New Jersey were in a declared state
of water emergency for 50 days , stressing local
businesses and homeowners during the holiday season.
In addition to the cost of importing several weeks’
worth of potable water, the cost to repair New Jersey’s
water supply was an estimated $2.6 billion7.
12
ecosystem
PARKS
Parks provide tremendous benefits in the form of improved
health for people and pets, revenues from tourism, higher
property values for nearby residents, and community cohesion.
Populated with trees and plants, natural systems like parks
control greenhouse gases, improve air quality, regulate climate,
and act as a haven for city dwellers who flock to parks to stay
cool—a benefit that cannot be underestimated.
Parks provide hiking trails, space for picnics, and countless
opportunities for recreation and better community health. They
allow young learners to deepen their understanding of and
curiosity about science by providing a safe, natural environment
in which they may explore. Parks in urban landscapes also give
students ready access to nature that they might not otherwise
have.
In 2008, two Washington schools, Foss High School and
Bellarmine Preparatory School, restored sections of the
59.58 acre Snake Lake Park by planting native vegetation.
A 2012 study conducted by Earth Economics on Snake Lake
Park estimated the economic value of the park’s combined
ecosystem services at $330,250. If the park were to be restored
to full health, the economic value would be $445,250. The
school project not only contributed to the students’ scientific
knowledge, it also improved the economic value of the park. As more people live in cities, the importance and value of
parks increases. And yet budget cuts in natural resource and
parks funding have resulted in parks being closed across the
country. In May of 2011, the California Department of Parks
and Recreation announced that it would be closing 70 of its 278
parks due to budget cuts that required a $33 million reduction
by 2012-13.
13
Because the value of parks was never estimated in dollars, it
was difficult to justify their protection. Recent studies have
demonstrated that parks actually contribute tremendous value
to society. In 2009 and 2010, the Trust for Public Land released
studies on parks in Seattle, Washington, D.C., and New York
showing these previously ignored benefits are worth hundreds
of millions of dollars. Understanding the real economic value of
parks is crucial for making well-informed policy decisions.
ms in action
MANGROVE FORESTS
Mangroves are tropical trees and shrubs that grow in
the coastal intertidal zone. Mangroves stabilize land
against the erosive forces of the sea; they protect
communities from devastating storms by acting as a
buffer, lessening strong winds and reducing the threat
of flooding. Healthy mangrove populations support
rich food sources for humans including fish, shrimp,
honey, sugar and fruits. These ecosystems capture and
reuse nutrients that might otherwise pollute marine
ecosystems, and their organic material supports a vast
variety of marine life in complicated food webs. Most
commercial seafood species depend on mangroves for
at least some stage of their life cycle; estimates indicate
this is true for up to 80% of species in Florida.
Mangroves provide these benefits for free and over
vast spans of time, continually renewed by solar
energy. Yet mangroves are being actively removed at an
alarming rate. Once covering three quarters of tropical
coastlines, one third of mangrove forests have been
wiped out over the past 50 years, with much of the loss
occurring in the last two decades. In the Philippines, of
the 400,000 hectares of mangroves recorded in 1918,
barely ¼ still remain. Many of the remaining mangroves
are degraded, with fewer species and thus reduced
value.
Aquaculture is also ecologically unsustainable:
Following three to ten years of production, aquaculture
operations typically succumb to disease, pollution and
other problems, and are then abandoned. Ecuador, a
global leader in aquaculture shrimp production in the
1980’s, saw its industry collapse in the 1990’s after
mangrove clearing depleted post larval shrimp stocks
used for feeding its ponds.
Recent efforts to assess the financial value of
mangroves have shown that this ecosystem may
actually produce more seafood when intact than when
converted to shrimp ponds. In 2009, a study conducted
by Earth Economics on the mangrove ecosystems in
the Philippines estimated that the net present value
of healthy mangrove ecosystems is approximately four
times greater than the net present value of shrimp
aquaculture.
A destroyed mangrove ecosystem is extremely difficult
and expensive to restore. With both the aquaculture
operation and the mangroves gone, the local people
who depend on fish are left with none.
The leading cause of mangrove loss is the clearing of
trees to create ponds for shrimp and fish aquaculture,
which is the practice of farming aquatic organisms such
as fish and crustaceans in high density. Aquaculture
is an important food source for a growing global
population; however, it also pollutes local waters with
sewage and spreads disease. By requiring the pumping
of vast amounts of fresh groundwater, aquaculture
often draws saltwater into coastal aquifers, damaging
the water supply of local communities.
14
15
HOW DO WE KEEP
ECOSYSTEMS
AND THEIR
SERVICES FROM
DISAPPEARING?
We must invest
in natural capital
restoration to
keep ecosystems
productive into
the future.
Healthy ecosystems must be kept intact and damaged
systems restored so that they may provide services for
future generations. Investing in natural capital promises
longer-term benefits and a stronger path to sustainability
than investments in built capital. Replacement costs can be
avoided by making investments that preserve natural capital,
like maintaining a healthy watershed. When water resources
are depleted, water must be imported from elsewhere at
great expense and damage to other ecosystems.
Some of the most pressing issues facing our economy
stem from a loss or degradation of natural capital. Reliable
supplies of clean water and natural wetlands and floodplains
to absorb flood flows are all becoming increasingly scarce,
and thus, increasingly valuable. The same is true of available
land for food production. As ecosystems decline, they can no
longer mitigate the risk of natural disaster, sea-level rise, and
changing climatic conditions.
Loss of crucial ecosystem services inevitably results in higher
costs to residents in the form of increased taxes to replace
natural systems with man-made ones, greater land-use
regulation, and greater risks to public health. When ecosystems
disappear we end up paying in more ways than one.
16
MAKING A CASE
FOR INVESTING IN
ECOSYSTEMS
Knowing the value of ecosystem services allows for
appropriate investment. Placing a dollar value on nature’s
work is not commoditizing nature. It is recognizing value,
which is often lost if not expressed in monetary terms.
When we put a price tag on nature, we can more accurately
estimate the price we’ll pay when it disappears.
When an ecosystem
is considered
valuable it is
more likely to be
preserved.
18
How Do Values Get
Assigned?
Healthy ecosystems are valuable, but just how valuable
are they? And how do we measure that? There are eight
primary methods used to calculate the value of each of
the twenty-three services that might be produced within a
given ecosystem.
Market Price: Prices set in the marketplace reflect
the value to the “marginal buyer,” that is, the buyers
who will buy if the price is slightly reduced, or stop
buying if the price is increased. The price of a good
tells us how much society will gain (or lose) if a little
more (or less) of the good is made available.
Travel Cost: Cost of travel required to consume or enjoy
ecosystem services. Travel costs can reflect the implied value
of the service. For example, recreation areas attract tourists
whose value placed on that area must be at least what they
were willing to pay to travel to it.
Avoided Cost: The damage cost that would
have been incurred in the absence of ecosystem
services. For example, flood control provided by
barrier islands leads to avoidance of property
damages along the coast.
Replacement Cost: The cost of replacing ecosystem
services with built capital systems. For example,
the cost to build a man-made waste treatment
facility to replace the natural nutrient cycling waste
treatment provided for free by a healthy wetland.
Factor Income: The income benefits provided by
an ecosystem service. For example, water quality
improvements increase commercial fisheries catch
and incomes of fishermen.
19
Hedonic Pricing: The value associated with increased prices
people will pay for benefits associated with specific ecosystem
services. For example, housing prices along the coastline tend
to exceed the prices of homes farther away.
Contingent Valuation: The hypothetical value placed on
non-market resources. For example, the price people
would be willing to pay to maintain a pristine shoreline or
uncontaminated wetland.
Group Valuation: A discussion based valuation arrived at by a
group of stakeholders to gauge society’s willingness to pay for a
specific ecosystem service.
Are Values of
Ecosystem Services
the Same for Different
Locations?
Natural capital can be appraised in a similar fashion
to business or house appraisals. Instead of looking
for comparative sales to determine value, we look for
comparative economic assessment studies that were
developed using the eight methods previously described.
This natural capital appraisal approach , called “Benefit
Transfer Methodology,” has gained popularity in the last
several decades as decision-makers have sought timely and
cost-effective ways to value ecosystem services.
Benefit-Transfer Methodology involves estimating
the natural capital value of a specific region or site by
comparing previous ecosystem service valuation studies
for similar geographies, socio-economic sites and
ecosystems. The value derived from the original study site
is “transferred” to the new site, like “comps” are used when
appraising real estate.
20
MAKING
VALUES WORK:
ECOSYSTEM
SERVICE
VALUATIONS
Ecosystem service
valuations quantify
the value of the
natural services
provided by a given
ecosystem, justifying
investment in
natural systems.
An ecosystem service valuation (ESV) identifies the suite
of services in a given ecosystem and assigns value to each.
The sum total of those separate values produces a total
ecosystem valuation. This incredibly informative number
allows for proposed management policies to be considered
in terms of their ability to improve or prevent destruction
of natural capital. Ecosystem valuations are an increasingly
critical part of decision making for natural resource
managers, economic and conservation organizations, and
policy makers at the local, state, and national scale.
The importance of ESV now and moving forward:
1) An ESV takes into consideration the long-term impact
of decisions made today that will help create a secure
foundation on which to build the resilient communities and
economies of tomorrow.
2) An ESV provides a means to identify previously
externalized costs (the negative costs/impacts of an
economic decision for which no one is held responsible,
such as air pollution from a car) and to factor these
costs into common economic decision making tools and
frameworks.
3) An ESV can be used to justify operations and
maintenance budgets for natural capital.
4) An ESV can demonstrate the lucrative return on
investment of conservation actions and innovative 21st
century community development policies.
5) An ESV can help generate funding mechanisms for the
preservation, restoration, and maintenance of ecosystems.
22
Who uses Ecosystem
Service Valuations?
Increasingly, private businesses and public agencies are formally
recognizing the importance of incorporating ecosystem service
concepts and valuation approaches in management and decision
making frameworks. This includes accounting for natural capital
on the books, monetizing the role of natural systems in disaster
mitigation and relief, and including ecosystem service valuation in
environmental impact assessments.
In March 2013, the Obama Administration released an updated
Principles and Guidelines for Water and Land Related Resources
Implementation Studies (P&G) , which are the rules that govern
how Federal agencies evaluate proposed water resource
development projects. The new P&G, developed by Federal
agencies with great public input, lays out broad principles and
tools to promote and support cost effective water infrastructure
projects. Included in this improved P&G toolkit are ecosystem
service valuations.
The inclusion of ecosystem service valuations in the P&G will help
guide investments with greater speed and at reduced costs. It
allows for the selection of water infrastructure investments that
provide the most significant long-term benefits to a community
and its economy. It sets the stage for more informed decision
making about risk mitigation, encourages investment in regional
recreation that boosts local business, and supports priorities of
the local community.
While all federal agencies are updating their procedures to
apply the new P&G guidelines, the United States Federal
Emergency Management Agency (FEMA) became the first
agency to adopt ecosystem service valuation in formal policy.
Faced with rising natural disaster costs and climate uncertainty,
FEMA approved Mitigation Policy FP-108-024-01 in June of
2013. The policy enables the use of FEMA mitigation funds to
remove, rather than rebuild, structures in areas that experience
frequent flood or hurricane damage. This policy shifts billions of
US taxpayer dollars away from rebuilding damaged structures in
the same location where there is a high likelihood that they will
be damaged again. Instead, FEMA funds will be used to secure
permanent no-build zones on flood prone land and structures
will be rebuilt on safer ground.
When an ecosystem is considered valuable it is more likely
to be preserved. Ecosystem service valuations quantify
23
By shifting investment out of
hurricane and flood prone
areas, the new policy will
improve private investment and
incentives. FEMA’s adoption of
ecosystem service valuation will
save lives and secure healthier
ecosystems, stronger economies,
and community resiliency.
Increasingly, private companies in the US and abroad
are adopting an ecosystem services-focused approach.
They recognize the importance of these services to
their own operations and their communities. As of early
2013, over 35 companies publicly named ecosystem
services as an issue of concern. Businesses that have
begun analyzing their practices through this lens are
discovering risks and issues they would otherwise have
overlooked, allowing them to take action before those
potential risks are realized. As an added incentive for
businesses, ecosystem risk management approaches are
increasingly the focus of investors, financial institutions,
and corporate ranking systems, such as the World Bank’s
International Finance Corporation, the Dow Jones
Sustainability Index, and banks that have adopted the
Equator Principles .
Dow Chemical is just one of the high profile corporations
undertaking this approach; they are working with the
Nature Conservancy to develop their strategy. In their
own words:
“The collaboration between Dow and The Nature
Conservancy demonstrates that protecting nature
can be both a global business strategy and a company
priority. By combining our resources and expertise, we
are integrating the value of nature into Dow’s business
decision-making.
Scientists, engineers, and economists from both
organizations are working together to analyze the
various services that nature provides to our operations
and the community. Those ecosystem services include
water, land, air, oceans and a variety of plant and animal
life. The work involves validating tools and models that
can assign a value to these services in order to support
Dow’s decision-making when it comes to designing,
constructing and operating its manufacturing sites.”
the value of the natural services provided by a given
ecosystem, justifying investment in natural systems.
24
The Ecosystem
Valuation Toolkit:
Standardizing the
Way We Capture and
Report Value
25
Earth Economics has created the web-based Ecosystem
Valuation Toolkit (http://esvaluation.org) to translate
scientific knowledge of ecosystems and the value of the
services they provide seamlessly into information readily
accessible by and usable to decision-makers. With ready
access to this kind of organized scientific data, decisionmakers can more easily factor sustainability into key
decisions and policies. This systematic, effective research
and computational tool has already proven successful at
merging ecological and economic information to inform the
financial sector, government, individuals, corporations, and
other economic actors.
The EVT platform accepts geographic and biophysical inputs,
and outputs economic values with associated science-based
ESV modeling and analytical tools. Researchers, land managers,
planners, and policy makers can use EVT to reduce the cost
of valuation from tens of thousands of dollars to hundreds.
Broad adoption and application of the EVT by government
agencies, NGOs, and businesses will result in stronger networks
of protected areas, rigorous benchmarks for environmental
incentives and penalties, and greater understanding of the
economic importance of natural capital.
When a discipline reaches a certain state of maturity, the
standardization of language, taxonomies, applications, and
methods is required to go to scale. When standards are
adopted and data becomes readily accessible, phenomenal
growth occurs and novel applications are developed. The fields
of mathematics, information technology, and genetics have all
undergone a standardization process similar to the one EVT is
enabling for economics.
EVT offers a way to map monetary values onto the physical
world. These values, incorporated into economic frameworks,
can help direct policy and inspire solutions to our most pressing
environmental problems. By making ecosystem service
valuations more accessible, EVT will help prepare us for a
sustainable future, economically and environmentally.
EVT offers a way to map monetary values onto the physical
world. These values, incorporated into economic frameworks,
can help direct policy and inspire solutions to our most pressing
environmental problems. By making ecosystem service valuations
more accessible, EVT will help prepare us for a sustainable future,
economically and environmentally.
26
27
IS CALCULATING
AN ECOSYSTEM’S
VALUE ENOUGH
TO PRESERVE IT?
The importance
of Accounting for
Nature’s Value.
The Government Accounting Standards Board (GASB)
produces a set of generally accepted accounting principles
(GAAP) that are well recognized within the accounting
industry as well as by governments in other countries.
These standards dictate what can and cannot be counted as
an asset on an organization’s financial statements. GASB is
currently reviewing a technical proposal submitted by San
Francisco Public Utility Commission and Earth Economics to
revise accounting standards for natural capital. Currently,
on the books of public utilities, the value of a watershed
as an asset is limited to the historical value of the land
that houses that watershed. The services provided by that
watershed, for accounting purposes, have no value. This is
a problem, and a look at the San Francisco Public Utilities
Commission (SFPUC) explains why.
The total assets of the SFPUC Water Enterprise are valued
at over $4 billion, with most of that value being found in
built capital. Facilities, pipes, vehicles, buildings, roads,
computers, copy machines, fences—even pencils—all count
as assets. The land from which the utility draws its water
counts as an asset, too, but per GASB standards, it can only
be valued at its historical purchase price of $28 million.
Those standards dictate that the greatest of all SFPUC’s
assets, the filtered water that pours out of every tap in the
San Francisco Bay area, may not counted as an asset on the
utility’s balance sheet.
Accounting practices must change to accommodate natural capital,
and funding mechanisms put in place to sustain ecosystem benefits.
In the United States, accounting standards,
like medical standards, are set by independent
boards. The Financial Accounting Standards
Board is responsible for setting corporate
accounting guidelines and rules. Accounting
standards for the US Federal government
are set by the Federal Accounting Standards
Advisory Board. Accounting and reporting
standards for state and local governments
within the United States are set by the
28
Government Accounting Standards Board.
In addition, since a filtration plant is an acknowledged
asset, a budget for maintenance and operations is
justified. With a watershed not being accurately valued
as an asset, it is more challenging to justify a sufficient
ongoing maintenance budget.
Ecological economics, by incorporating science and
sustainability, can reveal blind spots in conventional
economics and provide a major upgrade to our thinking and
decision-making. In this case, Earth Economics is leading
technical discussions with the GASB Advisory Board to bring
about the adoption of standards that will recognize the
value of ecosystem services on balance sheets, a change
that will help SFPUC and the watersheds they manage well
into the future.
COMPREHENSIVE ANNUAL
FINANCIAL REPORT
For The Year Ending June 30, 2012
SAN FRANCISCO PUBLIC UTILITIES COMMISSION
A Department of the City and County of San Francisco, California
Current financial accounting standards, relying solely on historical
costs, do not take into sufficient consideration the value of the
watersheds and natural resources that are part of our regional
water system.
For example, the SFPUC Water Enterprise has total assets of over
$4 billion and of this, based on historical costs only $28 million
reflects arguably some of our most important assets, our natural
resources; including our water rights, watersheds and rights-of-way.
29
Creative Funding
Concepts Engage the
Public in Supporting
Ecosystem Services
When we factor nature into economic decisions, we can
develop funding mechanisms to pay for the protection of
valuable ecosystem services. Small water surcharges, for
example, have been successfully implemented in cities to
raise money for their watersheds. In 2005, prompted by
local land trusts and the declining quality of their water, the
City of Raleigh, North Carolina began charging an impact
fee for new utility connections. The funds generated were
used to acquire property located around their drinking
water intake. As the program grew, it evolved into a line
item on ratepayer’s bills called a “Watershed Protection
Fee” of about 40 cents extra on a monthly bill. Since it was
implemented in November 2012, the fee has fulfilled the
city’s revenue goals and has generated over $1.8 million
for watershed protection. Thanks to community outreach
efforts on the part of Raleigh and the Conservation Trust
for North Carolina to educate and inform people about the
value of protecting watersheds, the fee has been met with
little opposition, especially among residential ratepayers.
Watersheds are not the only ecosystem to have benefitted
from creative funding mechanisms. Contrast what
happened in California (the closing of 70 parks) with
events that took place in Washington State that same year.
During the 2011 legislative session, Senators cited the
economic importance of natural resources jobs provided
by parks to gain support for the “Discover Pass.” The pass
would cost $30 annually and would be required on all
vehicles parked in public recreation areas like trailheads
and parks. The Discover Pass was approved, and produced
$22.2 million in revenue over the first 18 months ,
making up for some of the State Parks Department’s
budget shortfall with a robust funding mechanism. While
other states were closing parks in 2011, every one of
Washington State’s parks remained open!
Whether it is an individual homeowner paying 40 cents
a month for clean drinking water, an outdoor recreation
enthusiast paying for the upkeep of public land, or a multimillion dollar investment on the part of a private or public
sector entity, when the value of ecosystem services and
the cost of losing them is made clear, investment is more
easily justified.
30
31
CONCLUSION
Nature fuels the economy, and today we can measure the
services it provides.
As a society, we are currently updating outdated 20th
Century economic models and decision-making tools
that were created in a time when natural resources were
plentiful and built capital scarce. By building models to
capture nature’s significant financial contribution, previous
blind spots can be corrected through ecosystem service
valuations that measure the financial value these services
provide. When natural capital is included in the economic
conversation, we can make better informed policy decisions
and begin generating funds to pay for building sustainable,
healthy communities.
The concept of valuing ecosystem services has proven
effective for understanding the connection between
ecosystems and human well-being. A huge step forward
was taken when the President recently released Principles
and Guidelines requiring that ecosystem services
framework be adopted by all Federal Departments and
Agencies with jurisdiction over, or impact upon, natural
resources, especially water. Today, a number of U.S. federal
agencies house dedicated ecosystem services departments,
including the Department of Agriculture, the U.S. Geological
Survey, and the Environmental Protection Agency. These
departments advance the understanding of how ecosystem
service valuations can be promoted to improve long-term
economic prosperity for the nation.
While resources are still being depleted at an alarming rate,
governments and individuals are grasping the connection
between natural systems and the economy. With tools like
the Ecosystem Valuation Toolkit, it will only get easier to
justify investment in ecosystems which, if properly valued
and preserved, will provide essential and life-sustaining
services to us all, well into the future.
32
33
ABOUT EARTH
ECONOMICS
Since 1998, the nonprofit organization Earth Economics
has been at the forefront of exploring and explaining
the intricate relationship between human economies
and natural systems. To meet the challenges of the 21st
century, the goal of Earth Economics is to bridge the
historic disconnect between the environment and the
economy through new tools and principles that recognize
and demonstrate the economic importance of our planet’s
natural systems. Healthy communities depend on a healthy
environment; by investing in nature, we are investing in
our well-being and a sustainable future. When critical
decisions are being made, and policies set, our aim at Earth
Economics is to provide nature a place at the negotiating
table.
Earth Economics is funded by private foundations, contracts
and the generous support of people like you. Please visit
www.eartheconomics.org to learn more and to make a
donation to support this work and future projects like it.
Thank you.
34
ADDITIONAL
RESOURCES
Resource
Primary Developer
Description
Link
Artificial Intelligence
for Ecosystem Services
(ARIES)
The ARIES Consortium
ARIES redefines ecosystem services
assessment and valuation in decisionmaking. The ARIES approach to
mapping benefits, beneficiaries, and
service flows is a powerful new way
to visualize, value, and manage the
ecosystems on which the human
economy and well-being depend.
http://ariesonline.org
Biotics 4, Vista
NatureServe
NatureServe is a leader in the field of
biodiversity data management—the
systems, software, and information
technology tools needed to manage
biodiversity data and to deliver useful
products and services.
http://www.natureserve.org/
prodServices/infoTechnology.
jsp
BSR’s Ecosystem
Services Working Group
Businesses for Social
Responsibility (BSR)
BSR’s Ecosystem Services Working
Group focuses on emerging risks and
opportunities associated with corporate
reliance on, and impacts to, ecosystem
services.
http://www.bsr.org/en/
our-work/working-groups/
ecosystem-services-toolsmarkets
Corporate Ecosystem
Valuation (CEV)
World Business Council for In April 2011, WBCSD released
http://www.wbcsd.org/workSustainable Development the Guide to Corporate Ecosystem
program/ecosystems/cev.aspx
(WBCSD)
Valuation (CEV), which is the first of its
kind, catering directly to the needs of
business. The Guide is a framework for
improving corporate decision-making
through valuing ecosystem services, and
a set of resources to navigate through
related jargon and techniques.
Corporation 20/20
Corporation 20/20
35
Corporation 20/20 is an international,
multi-stakeholder initiative that seeks
to answer these questions. Its goal is
to develop and disseminate a vision
for the 21st century corporation in
which social purpose moves from
the periphery to the heart of the
organization.
http://www.corporation2020.
org/
Resource
Primary Developer
Description
Link
Ecosystem Based
Management Tools
Network
NatureServe
The mission of the Network is to
promote healthy coastal and marine
ecosystems and communities through
the use of tools that help incorporate
ecosystem considerations into
management.
http://www.ebmtools.org/
Ecosystem Commons
The Institute for Natural
Resources, A Community
on Ecosystem Services
(ACES), the National
Ecosystem Services
Partnership (NESP), and
many others
The Ecosystem Commons is a portal to
the ecosystem services world, hosting
discussions, showcasing projects, and
tracking trends.
http://ecosystemcommons.
org/
Ecosystem Services
Partnership
Ecosystem Services
Partnership
The ES-Partnership aims to enhance
communication, coordination
and cooperation, and to build a
strong network of individuals and
organizations.
http://www.es-partnership.
org/esp
Ecosystem Valuation
Toolkit (EVT)
Earth Economics
Earth Economics provides robust,
science-based, and ecologically
sound economic analysis, policy
recommendations, and tools to
positively transform regional, national,
and international economics, and asset
accounting systems.
http://esvaluation.org
EnviroAtlas
Environmental Protection
Agency (EPA)
Currently available as a password
protection beta-version, EnviroAtlas
is a collection of tools and resources
that provides geospatial data,
maps, research, and analysis on the
relationships between nature, people,
health, and the economy.
http://www.epa.gov/research/
enviroatlas/
Integrated Valuation of
Environmental Services
and Tradeoffs (InVEST)
The Natural Capital Project InVEST is a suite of software models
used to map and value the goods and
services from nature that sustain and
fulfill human life.
http://www.
naturalcapitalproject.org/
InVEST.html
36
Resource
Primary Developer
Description
Link
International Society for International Society for
Ecological Economics
Ecological Economics
(ISEE)
(ISEE)
ISEE is a not-for-profit, membergoverned organization dedicated
to advancing understanding of the
relationships among ecological, social,
and economic systems for the mutual
well-being of nature and people.
http://www.isecoeco.org/
Mainstreaming
Ecosystem Services
Initiative
World Resources Institute
http://www.wri.org/project/
WRI works toward a world in which
governments and businesses value and mainstreaming-ecosysteminvest in ecosystems—forests, wetlands, services
coral reefs, etc.—in order to secure
economic growth and people’s wellbeing. Strategy is two-fold: 1. Provide
decision-makers with information and
assessment tools that link ecosystem
health with the attainment of economic
and social goals; and 2. Develop new
markets, economic incentives, and
public policies that restore and sustain
ecosystems.
Marine Ecosystem
Services Project (MESP)
Duke University
The MESP mission is to help society
identify and sustainably manage the
globe’s ocean and coastal ecosystems
for the benefit of people and society
by understanding the value of these
ecosystems and the services they
produce.
http://mesp2.env.duke.edu/
Multi-scale Integrated
Models of Ecosystem
Services (MIMES)
AFORDable Futures
MIMES is a multi-scale, integrated
set of models that assess the value of
ecosystem services. MIMES provides
economic arguments for land use
managers to approach conservation
of ecosystems as a form of economic
development. The model facilitates
quantitative measures of ecosystem
service effects on human well-being.
http://www.afordablefutures.
com/services/mimes
The Economics of
Ecosystems and
Biodiversity (TEEB)
The Economics of
Ecosystems and
Biodiversity (TEEB)
The Economics of Ecosystems and
Biodiversity (TEEB) is a global initiative
focused on drawing attention to the
economic benefits of biodiversity. Its
objective is to highlight the growing
cost of biodiversity loss and ecosystem
degradation.
http://www.teebweb.org/
United States Society
United States Society
for Ecological Economics for Ecological Economics
(USSEE)
(USSEE)
The United States Society for Ecological http://www.ussee.org/
Economics (USSEE) provides a venue for
intellectual exchange and collaboration
on issues related to the theory, policy,
and implementation of sustainable
development.
Valuing Nature Network
(VNN)
The Valuing Nature Network brings
together natural scientists and
economists, alongside decision-makers
in business and policy, who have an
interest in valuing nature.
37
Valuing Nature Network
http://www.valuing-nature.net
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IMAGE
CITATIONS
PAGE CITATION
Cover New York, Heather Telesca
PAGE
19
Prairie Pothole wetland, USFWS
i
Prairie Smoke, Jennifer Briggs, USFWS
20
Fly fishing, South Santiam Watershed Council
1-2
Iron Ore Bay, Beaver Island, Michigan, public
domain image
21
Metro Parks Tacoma Phase II, Emiliano Hernandez
3
Lake Zander, Michian, public domain image
23
Cover Crops, Black Hawk County, Iowa,
courtesy of USDA – NRCS
4
Icons, Meghan C. Arntson
24
Alaska, April 30, 2013, Earth Economics
6
Wetland scene in the Catskills Mountains, Tiner
Ralph, U.S. Fish and Wildlife
25
Las Animas County, Colorado, Chris M. Morris
7
Field Windbreaks, USDA
26
Denver, Colorado, author Hogs555
8
Wisconsin Wetlands, Rock Springs, Barry Bahler,
FEMA
27
Moth, Heather Telesca
29
9
Cedar Rapids, Iowa, Paul Marlow
Golden Gate Bridge and San Francisco, California,
Charlie Day Daytime Studios
10
Whidbey Island Landslide, Washington,
Ted S. Warren, US News
30
Palouse Falls State Park Entrance, Public Domain
Image
13
Woman jogging, Metro Parks Tacoma
31
Hoh Rainforest, Washington, Konrad Roeder
14
Florida Mangroves, Hans Hillewaert
33
Bio Blitz, Metro Parks Tacoma
15
Devil’s Tower, Wyoming, Heather Telesca
17
Wisconsin Wetlands Educator’s Workshop,
Laura England
CITATION
40
Earth Economics
107 N. Tacoma Avenue
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253.539.4801
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